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Sutherland’s SALT Poll, “MTC Considering Broad Throwout Rule Under Cloak of Redefining ‘Sales,’” revealed that more than 80% of those surveyed oppose narrowing the scope of the type of “sales” used to calculate the receipts factor. The vast majority of respondents were opposed to altering the sales factor because they believed all receipts used to calculate business income should be reflected in the apportionment formula. The MTC’s proposal and the poll results are not surprising based on Sutherland’s experience with escalating attempts by state auditors to "throwout" certain types of receipts from the sales factor.
As noted in the introduction to the poll, the MTC proposal would limit the definition of “sales” to include only those gross receipts from activity that meets the “transactional test” of the definition of “business income” in the Uniform Division of Income for Tax Purposes Act (UDITPA). Sutherland’s Diann Smith, who attended the MTC meeting at which the proposal was discussed, asked the state representatives present at the meeting if using the transactional test (only) as a means to define sales for purposes of the sales factor would not be confusing and lead to more litigation, particularly given that many states have abandoned the UDITPA definition of “business income.” Diann observed afterwards that “this question was met with puzzlement by the representatives.”
Steve Kranz echoed Diann’s concern and noted that the MTC proposal results in a mismatch between apportionable income and factor representation. This disconnect can lead to systematic unfairness and increased litigation.
Sutherland has an ongoing coalition that monitors and responds to the MTC’s various proposals to revise UDITPA. Please email the Sutherland SALT Team to receive more information about this coalition and how it can help your company.
Following are full results of the poll: